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The Bank for International Settlements (BIS) notes that more than three quarters of global interdealer FX turnover was controlled by just six banks in 2016 compared to 14 in 1998, although it also acknowledges that most of that concentration happened prior to 2008.
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Roger Rutherford, |
The banks that are dominant now were among the first to embrace technology and as a result have built global franchises with embedded risk management, price discovery and execution tools that enable them to manage client flow effectively and cater to a wide range of trading strategies and order types, observes ParFX chief operating officer, Roger Rutherford.
“Providing that level of service requires a substantial investment in technology, connectivity and market data and only a handful of banks have the scale to achieve this,” he says. “We are also seeing increasing levels of regional or product specialization amongst smaller and mid-sized banks.”
Brad Bailey, a research director with Celent's capital markets division, refers to the increased concentration of major dealing banks in key currency pairs over the last decade. However, he also notes that these banks are the major suppliers of FX liquidity globally, much of which is being leveraged in innovative ways – for example, resold through a variety of white label solutions, partnerships and alternative liquidity provision.
